I read somewhere, “what has been will be again, what has been done will be done again; there is nothing new under the sun.” I agree. Everything moves in cycles. How the world has moved from pure pursuit of profit to ethical investing and now slowly shifting back towards pursuit of pure profit again is a good example.
You see, in one season the world ran on the essential idea that capitalism’s motive was to make profit. As Adam Smith, the 18th century philosopher and father of modern economics, succinctly put it: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
Basically, people were free to act in pursuit of their own good, without regard for sociopolitical pressure. But then came the environmental, social and governance (ESG) movement. With this style, investors pump their money in companies based on their commitment to one or more ESG factors.
However, between greenwashing accusations and an unclear definition of what ESG is about, the whole concept is falling apart.
Unsurprisingly, the biggest blow is coming from the realisation that ESG runs against the very core of capitalist logic; maximum profit.
So here we are, quietly cycling back to “returns over ideals.”
This is really exciting news for the many “luke-warm” believers unwilling to sacrifice return on the back of ESG investing – a lot of ESG investing doesn’t beat the market as some research shows.
For uber capitalists, the back-tracking is akin to saving capitalism from their arch nemesis, woke-capitalists. They are loving the backlash. Effectively, in some markets, the number of ESG fund launches are dwindling, some are witnessing huge outflows while others are mulling dropping the whole ESG phrasing altogether.
Once the smoke clears, they’ll be casualties. What happens to the politicians riding the ESG wave? What do we do with the thousands holding Coursera certificates on ESG? What happens to the billions committed to ESG initiatives? On the flipside, ESG stock pickers get to breathe – look, whatever the investment style, after fees, most active managers are going to fail to beat their benchmarks. These performance comparisons don’t make sense.
Anyway, this is life, everything ebbs and flows. We cycle up, then down, and repeat. It’s, therefore, pointless resisting a secular wave. That said, my quick take on this subject is this; Perhaps, we are too quick to judge. Maybe ESG investing is work in progress and needs a little bit of time to be refined. It’s definitely not a silver bullet but do we need to throw away the baby with the bathwater?
Have we also considered the fact that ESG being in the crosshairs is a sign of its power and potential rather than weakness? And who said the road to a sustainable world would be an easy walk? To summary, I’d encourage all the relevant actors, let us not become weary in doing good, for at the proper time we will reap a harvest if we do not give up.
